The 2009 Taxation Laws Amendment bill introduced an amendment to the once off estate duty abatement of R3,5 million per person. For some who have set up structures to take into account the older legislation it will mean revisiting and if necessary simplifying.  

Until the change, the law provided an abatement of R3,5 million per person, but if not used was forfeited. What this meant was that where a husband bequeathed his estate to his wife (and vice versa), making use of the estate duty exemption between spouses, only on the death of the “second dying spouse” would the R3,5 million be available as offset against the now combined estate.  

In order to avoid forfeiting, many wills were structured so that each spouse first bequeathed an amount equal to this abatement to a trust and the balance to the spouse. This ensured that the tax free R3,5 million was captured for each spouse. The creation and administration of a trust can be costly especially where a total estate is valued less than say R10m.

The changes to the estate duty now obviate this and simplify the planning that is necessary.

Section 4A of the Estate Duty Act now caters for “portability” of the abatement between spouses. With effect from 1 January, where the first dying spouse does not utilise any or the full R3,5 million, the unutilised portion rolls over to the second spouse and his added to that persons R3,5 to a maximum of the R7 million.
 
Therefore where the first dying spouse, merely bequeaths the entire estate to the surviving spouse, then the full R7 million is available as an abatement for the second dying.

While the changes make things simpler, this does not necessarily mean throwing out the use of trusts. Consider these 2 considerations.

• The second dying spouse may still live many years after the death of the first and so while the R3,5m is now not forfeited, the growth on this value will be. Bequeathing to a trust will capture the growth in a trust and avoid the 20% estate duty.
• A trust has other advantages including asset protection and the holding of assets for minor children.

There is no doubt that this change is advantageous. It may be the first step in the process of overhauling the Estate Duty Act.

This recent change should prompt everyone that has not looked at their wills and trusts for some time, to do so. This must be done in conjunction with investment planning and appropriate levels of risk cover.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.